Free Response to Motion - District Court of Federal Claims - federal

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No. 06-150C (Judge Block) IN THE UNITED STATES COURT OF THE FEDERAL CLAIMS VERIDYNE CORPORATION, Plaintiff, v. THE UNITED STATES, Defendant.

DEFENDANT/COUNTER-CLAIMANT'S REPLY TO PLAINTIFF'S RESPONSE TO DEFENDANT/COUNTER-CLAIMANT'S CROSS MOTION FOR SUMMARY JUDGMENT AND RESPONSE TO PLAINTIFF'S MOTION TO STRIKE

PETER D. KEISLER Assistant Attorney General JEANNE E. DAVIDSON Director STEVEN J. GILLINGHAM Assistant Director ROBERT E. CHANDLER Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street N.W. Washington, DC 20530 Tele: (202) 514-4678 Fax: (202) 514-8624 Attorneys for Defendant

Of Counsel: Janis Rodriguez Office of Chief Counsel Department of Transportation August 10, 2007

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TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i TABLE OF AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii DEFENDANT/COUNTER-CLAIMANT'S REPLY TO PLAINTIFF'S DEFENDANT/COUNTER-CLAIMANT'S CROSS MOTION FOR SUMMARY JUDGMENT AND RESPONSE TO PLAINTIFF'S MOTION TO STRIKE . . . . . . . . . . . . . . . 1 I. Veridyne Made Misrepresentations Sufficient To Support The Governement's Fraud Counterclaim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 A. In Stating That "The Scope Of Work Will Remain The Same," Veridyne Represented That Its Proposal Was Based Upon The Same Volume Of Work As Required Pursuant To The Original Contract And, Therefore, The Labor And Cost Figures Included In The Proposal Constituted Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Even If Veridyne's Statement That "The Scope Of Work Will Remain The Same" Is Deemed To Refer To The Type Of Work To Be Performed Pursuant To The Contract, As Veridyne Suggests, The Labor And Cost Figures Contained In Veridyne's Proposal Still Constitute Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Veridyne's Proposal Was Represented To Be An Estimate Based Upon A Projection Of The Volume Of Work . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

B.

C.

II.

The Government Is Not Required to Prove Damages Or Reliance Upon Veridyne's Misrepresentations In Order To Prevail Upon Its Fraud Defenses Or Counterclaim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 The Government Is Entitled To Summary Judgment With Respect To Veridyne's Breach Of Contract Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 The Court Should Deny Plaintiff's Motion To Strike Portions Of The Declarations Of Benedict Burnowski And Kevin Durkin . . . . . . . . . . . . . . . . . . . . . . . . 15 A. The Court Should Not Strike Paragraphs 3-13 and 20 From the Declaration of Benedict J. Burnowski . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 The Court Should Not Strike Paragraphs 5 and 7 From The Declaration Of Kevin T. Durkin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

III.

IV.

B.

i

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CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 APPENDIX Supplemental Declaration of Benedict Burnowski . . . . . . . . . . . . . . . . . . . . . . . . . . . . A1 Exhibit 1 - October 18, 2000 Letter from Glenn Downer . . . . . . . . . . . . . . . . . A3 Exhibit 2 - May 14, 2001 Letter from Leonard Freiberg . . . . . . . . . . . . . . . . . . A5

ii

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TABLE OF AUTHORITIES CASES Cain v. Irvin, 2007 WL 2023581 (2007) .................................................................................................. 2 Continental Cas. Co. v. American Sec. Corp., 443 F.2d 649 (D.C. Cir. 1970) ........................................................................................ 16 J.E.T.S., Inc. v. United States, 838 F.2d 1196 (Fed. Cir. 1988) ....................................................................................... 13 K&R Engineering Inc. v. United States, 616 F.2d 469 (Ct. Cl. 1980) ............................................................................................. 13 Londrigan v. Federal Bureau of Investigation, 670 F.2d 1164, 1174 (D.C. Cir. 1981) ............................................................................ 17 Long Island Savings Bank v. United States, 476 F.3d 917 (2007) ............................................................................................. 12, 13, 19 Ondis v. Barrows, 538 F.2d 904, (1st Cir. 1976) ........................................................................................... 16 United States v. Mississippi Valley Generating Co., 364 U.S. 520 (1961) ......................................................................................................... 13 Vote v. United States, 753 F. Supp. 866, 868 (D. Nev. 1990) ............................................................................. 17 Washington Cent. R. Co. Inc. v. National Mediation Bd., 830 F. Supp. 1343, 1353 (E.D. Wash. 1993) ............................................................. 16, 17

STATUTES United States Codes 15 U.S.C. § 637(a)(1)(D) ................................................................................................... 1, 2, 4, 5

28 U.S.C. § 2514 .......................................................................................................................... 18

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS VERIDYNE CORPORATION, Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) )

No. 06-150C (Judge Block)

DEFENDANT/COUNTERCLAIMANT'S REPLY TO PLAINTIFF'S RESPONSE TO DEFENDANT'S CROSS MOTION FOR SUMMARY JUDGMENT AND RESPONSE TO PLAINTIFF'S MOTION TO STRIKE In our cross motion for summary judgment, we demonstrated that the contract upon which plaintiff bases its claims was procured through fraud and in violation of 15 U.S.C. § 637(a)(1)(D) and, therefore, the contract was void ab initio. As a result, the United States is entitled to summary judgment in its favor on Counts I, II and III of Veridyne's complaint and on the United States' counterclaim in fraud in the amount of $31,134,931.12. In addition, we requested that the Court find that Veridyne's claims have been forfeited pursuant to 28 U.S.C. § 2514 and grant summary judgment in favor of the United States on Counts I, II and III of Veridyne's complaint. Finally, we established that the Government is entitled to summary judgment with respect to Count III of Veridyne's complaint because, even if the contract were deemed not to be void, the Government did not breach the contract as alleged in Count III. The contract called for the Government to purchase a minimum dollar amount of services in each year of its existence, and the summary judgment evidence reflects that the Government made the required purchases.

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The most significant feature of Veridyne's response is its omissions. Veridyne wholly fails to address our argument that the contract was void because it was awarded in violation of 15 U.S.C. § 637(a)(1)(D). Def. Resp. at 11. By failing to address this argument, Veridyne has waived any argument it may have in opposition to this defense and counterclaim. Rules of the Court of Federal Claims ("RCFC") 56(e); Cain v. Irvin, 2007 WL 2023581 (W.D. Kent. 2007). The Court therefore should grant summary judgment in favor of the Government on that basis. Also, Veridyne neglects entirely to address our responses to their ratification and estoppel arguments. Def. Resp. at 17-21. In its response, Veridyne argues only that (i) the Government failed to demonstrate the fact of a misrepresentation by Veridyne, (ii) the Government failed to demonstrate that it relied upon a misrepresentation by Veridyne or that the Government was damaged by such a misrepresentation and (iii) that the Maritime Administration ("MARAD") breached its contract with Veridyne by failing to pay for services it received. Contrary to Veridyne's assertions, however, the record contains substantial evidence of misrepresentations made by Veridyne in the procurement of the subject contract. Moreover, the United States need not demonstrate that it relied upon those misrepresentations in order to prevail upon its defenses or counterclaim. In addition, the Government has demonstrated that there is not a genuine issue of material fact with respect to Count III of Veridyne's amended complaint and that we are entitled to summary judgment with respect to Count III. Finally, even if the Government breached the contract by failing to pay invoices submitted by Veridyne, Veridyne is not entitled to the lost profits claimed in Count III as a matter of law.

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I.

Veridyne Made Misrepresentations Sufficient to Support the Government's Fraud Counterclaim Veridyne's proposal for the extension of the contract through Modification 23 (the

"proposal") contained labor figures and cost projections that were unreasonably low given the anticipated and acknowledged work to be performed pursuant to the extension. In that way, Veridyne misstated those labor and cost figures so that the proposal could be used to justify the award of the extension without competition. It is clear that both parties anticipated that the work to be performed pursuant to the contract extension (i.e., option years 5-9) would be the same as the work performed in the first five years of the contract. That is, Veridyne would "provide for the logistics support services necessary to maintain and enhance, where necessary, MARAD's Logistics Programs in support of the Ready Reserve Force (RRF) and its overall mission." Patterson Decl., Exh. A (29). In a letter dated March 10, 1998, MARAD Contracting Officer Rita C. Jackson indicated to Samuel Patterson, Veridyne's chief executive officer, that "the scope of work will remain the same" under the extended contract as it had been pursuant to the original contract. Patterson Decl., Exh. E. Patterson later told investigators that he believed that MARAD would order more than $3 million in services pursuant to the extension. Durkin Decl. ¶ 6. Moreover, Veridyne stated in its cover letter accompanying the proposal, dated March 30, 1998, that the proposal assumed that the "the scope of work will remain the same," thus confirming that it shared the Government's expectation with respect to the work to be performed and representing that its proposal was based upon that expectation. Patterson Decl., Exh. F.

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Veridyne's proposal was not, however, based upon that expectation. Instead, Veridyne based its proposal solely on the need to remain below the three million dollar threshold set forth in 15 U.S.C. § 637(a)(1)(D), so that the contract extension could be awarded to Veridyne without competition. Durkin Decl. ¶ 6. In order to accomplish this, Veridyne grossly understated the labor hours required to provide the same scope of work and, consequently, understated the costs to the Government in extending the contract. Patterson Supp. Decl. ¶ ¶ 23-24. In its proposal, then, Veridyne (i) stated that in the proposal it had assumed the scope of work would be the same and (ii) provided labor and cost figures that clearly were inconsistent with that assumption. Veridyne argues that it would have been absurd to believe that it would provide the same scope of services it had provided pursuant to the original contract for just three million dollars over five years. Pl. Resp. at 19. That is precisely the Government's point. Veridyne clearly could not have performed the same scope of services using the amount of labor contained in its proposal. And, therefore, it could not have performed the same scope of services for under three million dollars. The Government acknowledges that the cost figures provided by Veridyne were consistent with the labor figures it used. We contend, however, that Veridyne's labor and cost figures were not consistent with its representation that the scope of services would remain the same. More importantly, while the misrepresentation of the amount of labor and the total contract amount might have been obvious to anyone intimately familiar with the contract, it would not have been so obvious to others within the Government whose approval was necessary to complete the transaction without soliciting competitive bids. The proposal could then be used within the Government to justify the award of the extension of the contract without competition. 4

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Recall that 15 U.S.C. §637(a)(1)(D) requires that the contract be subject to competition if total costs are anticipated to be greater than three million dollars. Based upon the facts cited in the Government's moving brief and in this reply (i.e., the history of the amounts paid pursuant to the contract, Veridyne's impending graduation from the 8(a) program, the existence of the three million dollar threshold below which Veridyne could avoid competition), the Court may infer that Veridyne created its absurdly deflated proposal in order to create the appearance that the anticipated cost of the extension would be less than three million dollars. As we explain in detail below, Veridyne's the labor and cost figures in Veridyne's proposal are misrepresentations regardless of whether the phrase "scope of work" is understood to mean the volume of work required pursuant to the contract, as suggested by the plain language of that phrase as well as the parties' correspondence interpreting that phrase, or it is understood to mean the type of work, as suggested by plaintiff. Pl. Resp. at 17-18. Moreover, Veridyne's proposal impliedly represented that the labor and cost figures contained therein were a projection of the volume of work anticipated pursuant to the contract. The Court therefore should reject Veridyne's argument that the Government has failed to prove the fact of a misrepresentation. A. In Stating That "The Scope Of Work Will Remain The Same," Veridyne Represented That Its Proposal Was Based Upon The Same Volume Of Work As Required Pursuant To The Original Contract And, Therefore, The Labor And Cost Figures Included In The Proposal Constituted Misrepresentations

Veridyne represented in its cover letter dated March 30, 1998, that the attached proposal assumed that "the scope of work will remain the same." Patterson Decl., Exh. F. The plain meaning of that language and the correspondence between the parties indicates that, in making that statement, Veridyne represented that the accompanying proposal was based upon the same

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volume of work as it had experienced in the preceding years pursuant to the original contract. Its proposal, however, was based upon a far narrower scope of work so that the proposal fell below the $3 million threshold required to avoid competing the contract. Thus, in light of Veridyne's representation that the proposal assumed the same scope of work as the previous contract, the number of labor hours and the total contract amounts included in its proposal were false. Veridyne argues that the phrase "scope of work" referred to the type of work, not the volume of work. Pl. Resp. at 17-18. An examination of the correspondence surrounding the execution of Modification 23, however, indicates that the phrase "scope of work" as used in Veridyne's proposal letter was intended to refer to the anticipated volume of work pursuant to Modification 23. The most telling indication that the phrase "scope of work" referred to the volume of work is the letter from MARAD Contracting Officer Rita C. Jackson to Samuel Patterson, dated March 10, 1998. Patterson Declaration, Exh. E. Verdiyne's proposal was a response to this letter. In the letter, Ms. Jackson indicates that the "scope of work will remain the same" and then asks for "a formal cost proposal" that "should identify the cost per year for this five year extension." The request for cost per year estimates would be meaningless unless related to the amount of work, and the only thing that the letter mentions that could be a source of such guidance is the fact that the extension would be for the same "scope of work." Viewing the proposal in its context as an answer to Ms. Jackson's letter, the only reasonable interpretation of the proposal and its "breakdown of costs for each of the five years" is that it misrepresented the proposal as a cost proposal for the same volume of work as provided pursuant to the original five years of the contract. 6

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Subsequent correspondence between the parties regarding the contract confirms this understanding of the phrase "scope of work." In a letter dated October 18, 2000, from Veridyne Vice President Glenn Downer to MARAD's Contracting Officer Benedict Burnowski, Downer asks for an increase in the award fee because "the scope of work" of the contract had increased. ¶ 2. Burnowski Supp. Decl., Exh. 1. He then lists several "[e]xamples of this increased scope of work," each of which constitutes not a broadening of the type of work that Veridyne was doing, but rather an increase in the volume of the work: (i) "Major logistics overhauls have been conducted or started on 5 RRF ships." ¶ 2. This is covered in the original contract Section C.2.5 providing that "[t]he contractor should be capable if tasked to provide on site logistics support services for major ship overhauls and conversions." "Logistics overhauls are nearly completed on two school ships, and started on a third." ¶ 2. Also covered by Section C.2.5. "Complete Logistics overhauls have been completed on the MCDS systems on all seven ships equipped with the system, bringing the system up to the support levels established by the US Navy." ¶ 2. Also covered by Section C.2.5. "Support has been provided to the OPDS systems and ships in both pre and post exercise logistics support activities." ¶ 2. Falls under Veridyne's general logistics support functions. "Logistics Local Area Networks (LANs) have been ordered and installed and supported in two of the Region Logistics Shore Based Spares warehouses." ¶ 2. Section C.2.1 of the original contract tasks Veridyne "with overall system management" of "all . . . automated programs in support of MARAD's Logistics Support Program which interface with ECSMIS." This includes "system maintenance and enhancement, including hardware, software, and documentation."

(ii)

(iii)

(iv)

(v)

Thus, when Downer used the phrase "scope of work" in reference to the contract, he clearly intended it to refer to the volume of work, not the type of work.

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In a follow-up letter dated May 14, 2001, from Veridyne Vice President Leonard S. Freiburg, Jr., to MARAD's Burnowski, Mr. Freiburg refers to the above letter to reiterate Veridyne's claim for an increased award fee. Burnowski Decl., Exh. 2. Mr. Freiberg states that "[t]he scope of work in logistics overhauls remains well above that experienced in the early years of the contract. Where we typically had 2-3 ships in work at one time, we now have 4-5 ships undergoing active logistics overhauls simultaneously." ¶ 19. This clearly refers to an increased scope of work in terms of an increased quantity of work rather than an expansion of the type of work, and it supports our interpretation of the phrase. B. Even If Veridyne's Statement That "The Scope Of Work Will Remain The Same" Is Deemed To Refer To The Type Of Work To Be Performed Pursuant To The Contract, As Veridyne Suggests, The Labor And Cost Figures Contained In Veridyne's Proposal Still Constitute Misrepresentations Veridyne argues that its proposal was consistent with its statement that the scope of work would remain the same, if the phrase "scope of work" is understood to mean they type of work, because its proposal provided for it to perform the same type of work it had performed pursuant to the original contract. Pl. Resp. 17-18. Even if "scope of work" refers only to the type of work and not the quantity, as Veridyne argues, the proposal was not based upon the same type of work as the original contract and, therefore, was a misrepresentation. Even though the tasking of the work was to be issued through work orders and technical directives from MARAD, the level of the work was not wholly within MARAD's discretion such that nothing certain could guide Veridyne's estimate. The original contract's specifications, adopted by Modification 23, task MARAD with certain exclusive responsibilities whose fulfillment would necessarily require at least a base quantum of work. In other words, there was

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a fixed minimum amount of work required pursuant to the contract. The work required to fulfill these functions over the life of the extension was represented to be included in any estimate of costs for that extension, insofar as Veridyne represented that the proposal was based upon the same "scope [i.e., type] of work" as the original contract. The contract's general description of work to be performed states, "Contractor acquired resources will manage the ECMIS programs, be readily available to aid in the analysis, planning and execution of supply related logistics support and respond to the various logistics support requirements of the Ready Reserve Force . . . . The contractor will be required to assume full responsibility for performance for the system during a phase-in period, estimated to be between sixty and ninety days, following contract award." Contract No. DTMA91-95-C-00024, § C.1.1. The more detailed statement of work enumerates a list of duties, which it says will be tasked through work order. Most of these duties are qualified by the prefatory "The contractor shall be capable" (i.e., if asked by MARAD), which indicates that the duty is conditional and may or may not be tasked. However, for two of them, this prefatory phrase is missing and the mandate is certain: i. "[The contractor p]erforms all the duties associated with overall system management of MARAD's RTF Equipment Configuration and Spare Parts Management Information System (ECSMIS) and all other automated programs in support of MARAD's Logistics Support Program which interface with ECSMIS. This includes, but is not necessarily limited to: system maintenance and enhancement, including hardware, software and documentation; system analysis, management reporting, the preparation of procedural guidance, and training. The contractor will be expected to maintain the ECSMIS system on line, 24 hours a day, 7 days a week." Furthermore, the contractor is to "[m]onitor and maintain the integrity of the logistics data input or output from the various program sources including but not limited to Ship Manager SAL updates, PC-SAL downloads, Provisioning updates, Procurement reviews and program receipts, Equipment validations and Spare Part inventories." Id. § C.2.1. 9

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ii.

"The contractor shall provide a support facility to perform receipt inspection and acceptance for all materials from the Federal Supply System to package, label, and stage material by ship for subsequent delivery and process Ship Manager ordered material. The facility shall be located in Newport News, Virginia. The facility must have office and storage space and be a minimum of 11,900 square feet." Id. § C.2.8.

The contract also provides for "Required Labor Categories," including Project Manager, Senior Analyst, System Analyst II, System Analyst I, Maintenance Data Analyst II, Maintenance Data Analyst I, and Data Operator. Id. § C.3. Veridyne's proposal, however, failed to include a Maintenance Data Analyst II for the final option year, and failed to include a Maintenance Data Analyst I for the final three option years. Patterson Decl., Exh. F at 102. It further states that there must be at least one person who is an expert in each of the following areas: automated programs, provisioning, procurement, engineering/maintenance, and logistics, Id. § C.4, yet Veridyne's proposal does not provide for such expertise. All of these categories and requirements for expertise would be necessary for performing the mandatory functions mentioned supra. Thus, even though the contract was IDIQ, and even though all work would still need to be issued by work order, the language of the contract with respect to these responsibilities was enough to establish that at least these functions would be required of Veridyne for the duration of the contract. Yet Veridyne did not include labor figures, or the consequent cost figures, related to these types of non-discretionary services. Instead, it ignored them altogether in order to be able to present an artificially deflated proposal to the Government.

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C.

Veridyne's Proposal Was Represented To Be An Estimate Based Upon A Projection Of The Volume Of Work

In response to our contention in our moving brief that the proposal was, itself, an estimate of the anticipated volume of work during the option years, Veridyne argues that because the work orders were issued at the discretion of MARAD and because the contract was IDIQ, Veridyne could not have been expected to provide an estimate for the actual level of work. The course of dealing and performance between MARAD and Veridyne demonstrates that this is not true. First, the original contract had the same terms, but the estimate was reasonably in line with the actual cost of the contract. Burnowski Decl. ¶ ¶ 6-7. Second, in the letter dated May 14, 2001, from Veridyne's Freiberg to MARAD's Burnowski, Frieburg supports his request for an upward revision in the award fee with new estimates for the costs of the extension contract. Burnowski Decl., Exh. 2. He states that "[f]or a level-of-effort, term type contract with a very general scope of work, using actual costs and business projections is the most valid basis for estimating costs for the out-years. By taking this approach, Veridyne has been able to develop an extremely reliable projection for Option Years 5-9." Id. at ¶ 4. Indeed, the evidence suggests that the proposal was to be a projection of total costs. The letter from MARAD Contracting Officer Rita C. Jackson to Samuel Patterson, dated March 10, 1998, to which the proposal was a response, requests "a formal cost proposal" that "should identify the cost per year for this five year extension." The requested for cost per year estimates would be meaningless if all MARAD really wanted was the number of hours that would fit within the $3 million limit, randomly allocated across the five year contract. Viewing the

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proposal in its context as an answer to this letter, the proposal's "breakdown of costs for each of the five years" contained an implied representation that it was based upon some sort of projection of activity under the contract. Moreover, two sections of the proposal state that estimates (for general and administrative costs and for other direct costs) are based upon "anticipated business volumes expected over this time frame" and "anticipated activity." Patterson Decl., Exh. F, §§ 1.6-1.7. Thus, contrary to Veridyne's assertions, the proposal was not presented as an estimate of the amount of work that MARAD could purchase for $3 million. Rather, it was a proposal for the contract extension that impliedly relied upon a projection of business activity over the duration of the extension. Those projections, however, were patently false and designed solely for the purpose of avoiding competition in the award of the extension. II. The Government Is Not Required to Prove Damages or Reliance Upon Veridyne's Misrepresentations In order to Prevail Upon Its Fraud Defenses or Counterclaim Evidence of the Government's reliance upon Veridyne's misrepresentation or damages suffered by the Government in reliance upon such a misrepresentation is not relevant to the consideration of the Government's defenses in this case, and the Court should ignore Veridyne's many references to the purported lack of such evidence. Indeed, Veridyne has taken this view as well. After citing Black's Law Dictionary for the proposition that proof of a fraud claim requires (1) a false representation of fact, (2) reliance upon the misrepresentation and (3) damages resulting from reliance, Veridyne acknowledges that "detrimental reliance and injury seem not to be required" in order to prove the Government's forfeiture defense pursuant to 28 U.S.C. § 2514. Pl. Resp. at 12, (citing Long Island Savings Bank, et. al. v. United States, 476 F.3d 917, 926

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(2007)). Nevertheless, at various points in its response brief, Veridyne points to an alleged lack of evidence of the Government's reliance upon Veridyne's misstatements or damages. Pl. Resp. at 6-7, 19, 21, 24, 26 (fn. 11 and accompanying text), 27. Proof of reliance and damages, however, is not required in order for the Government to prevail upon its fraud defenses or counterclaim. As Veridyne correctly states, Long Island Savings Bank held that such proof is not required in order for the United States to successfully assert a forfeiture defense pursuant to 28 U.S.C. § 2514. Moreover, proof of damages is not required in order for the contract to be deemed void ab initio pursuant to Mississippi Valley and its progeny. United States v. Mississippi Valley Generating Co., 364 U.S. 520, 548 (1961) (there is "no burden on the Government to establish financial loss"); K & R Eng'g Co. v. United States, 616 F.2d 469, 475 (1980) ("It is therefore immaterial whether the particular taint has or has not in fact caused the government any financial loss or damages"). Similarly, proof of the Government's reliance upon misrepresentations by the contractor is not required. J.E.T.S., Inc. v. United States, 838 F.2d 1196, 1200 (Fed. Cir. 1988) (affirming summary judgment finding contract void ab initio based solely upon contractor's having been estopped to deny misrepresentation). Indeed, in Mississippi Valley, the Court held that the contract would be void even if the Government had knowledge of and approved of the activities that gave rise to the Court's finding of a conflict of interest. Mississippi Valley Generating Co., 364 U.S. at 561. In any event, the record in this case contains evidence of reliance by the Government. Clearly the Government relied upon Veridyne's misstated labor and cost figures because, if the proposal had not projected costs below $3 million, MARAD could not have awarded the contract to Veridyne without subjecting the award to competition pursuant to 15 U.S.C. § 637(a)(1)(D). 13

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III.

The Government is Entitled to Summary Judgment with Respect to Veridyne's Breach of Contract Claim In its amended complaint, Veridyne alleged as part of its Count III that "[t]he actions of

MARAD's counsel in stopping Veridyne's performance1 [after MARAD's counsel determined that the contract was void] put MARAD in breach of the Contract;" Veridyne argues, therefore, that it "is entitled to the lost profit it would have realized had the Contract not been breached." Amend.

Compl. ¶ 65. In our response and cross motion, we requested that the Court enter summary judgment in favor of the Government with respect to Count III because, as Veridyne acknowledged, MARAD was obligated to order only $299,985 in services pursuant to the contract, and MARAD had, in fact, ordered and paid for an amount of services far in excess of that figure. Def. Resp. and Cross-motion at 22. Veridyne's only argument in response is that the Government breached the contract by failing to pay several invoices submitted by Veridyne.2 Even if Veridyne is correct, however, the Government's failure to pay the disputed invoices did not result in Veridyne's having lost profits pursuant to the contract, which is the basis for Count III. The plaintiff in a breach of contract
1

We note that the Government did not "stop[] Veridyne's performance;" rather, the Government simply ceased placing orders pursuant to the contract, as it was entitled to do. 2 Veridyne's argument on pages 28 and 29 about the amount actually paid by MARAD is not responsive to our argument. Veridyne correctly notes that it was not actually paid $31,134,931.12. That figure, used on page 22 of the Government's brief, was erroneously derived from the statement in Mr. Burnowski's declaration that MARAD had "approved" invoices in that amount. Burnowski Decl. ¶ 15. As the Government acknowledged in its response to plaintiff's proposed findings of fact, however, the Government did not pay invoices 260 through 265. The amount of the invoices paid by the Government, then, is the amount approved, $31,134,931.12, less the amount of the unpaid invoices. This issue, however, bears no relevance to the question of whether the United States is entitled to summary judgment with respect to Count III because, regardless of the exact amount, MARAD clearly ordered and paid for an amount of services in excess of its minimum obligations pursuant to the contract, a 14

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action is entitled only to damages resulting from the particular breach, RESTATEMENT 2d OF CONTRACTS § 347, cmt. e, and Veridyne cannot explain how it might have lost future profits as a result of the Government's refusal to pay past invoices. Moreover, the breach alleged in Veridyne's response is not the same breach alleged in Count III of the amended complaint. Veridyne has wholly failed to address whether the Government's decision not to place additional orders pursuant to the contract was a breach of the contract or to proffer any summary judgment evidence contradicting the evidence relied upon by the Government. Thus, there is no dispute of material fact relevant with respect to to the determination of Count III, and the Government respectfully requests that the Court grant summary judgment in favor of the Government. IV. The Court Should Deny Plaintiff's Motion To Strike Portions Of The Declarations Of Benedict Burnowski And Kevin Durkin3 A. The Court Should Not Strike Paragraphs 3-13 and 20 From the Declaration of Benedict J. Burnowski

Veridyne argues that the Court should strike paragraphs 3-13 and paragraph 20 from the declaration of Benedict Burnowski because, plaintiff alleges, the information contained in them is not within his personal knowledge. Veridyne correctly states that an affidavit in support of or in opposition to a motion for summary judgment must be based upon the affiant's personal knowledge. Rules of the Court of Federal Claims ("RCFC") 56(e). Veridyne further explains that, it believes, Burnowski lacks the requisite personal knowledge to support his declaration

proposition which Veridyne does not dispute. 3 The Government notes that Veridyne's arguments that the Burnowski and Durkin declarations contain hearsay and include information about which the declarants lack personal knowledge, Pl. Resp. at 22-25, are substantially repeated in Veridyne's Motion to Strike, submitted May 23, 2007. For the convenience of the Court and the parties, the Government has included its response to Veridyne's motion to strike in Section III of this brief. 15

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because he "had no personal involvement with the Contract until January, 2000." Pl. Resp. at 22. "Personal knowledge, however, is not strictly limited to activities in which the declarant has personally participated." Washington Cent. R. Co. Inc. v. National Mediation Bd., 830 F. Supp. 1343, 1353 (E.D. Wash. 1993). Moreover, an affiant's personal knowledge may be substantiated based upon his position and consequent responsibility or opportunity to know the relevant facts. Ondis v. Barrows, 538 F.2d 904, (1st Cir. 1976) (affirming the district court's denial of a motion to strike statements relating to the registration and listing of a security based upon affiant's position as office manager and fact that he was "personally familiar with the events surrounding" the public offering of the securities); Continental Cas. Co. v. American Sec. Corp., 443 F.2d 649 (D.C. Cir. 1970) (concluding that affidavit was sufficient where it was "by an officer ... with the responsibility for processing claims, who made the affidavit on his own personal knowledge and on the records of the surety company with which his duties required him to be familiar"). Veridyne is incorrect, therefore, in arguing that Burnowski lacks the requisite personal knowledge to affirm the disputed paragraphs in his declaration simply because he did not assume his responsibilities as team leader until January 2000. Here, Burnowski had the requisite personal knowledge to support his declaration. Burnowski explicitly stated in his declaration that the statements therein were true and based upon his personal knowledge. Burnowski Decl. p. 2. Burnowski's personal knowledge was derived from his position as team leader with oversight responsibility for the relevant contract and as a contracting officer, starting in January 2000. Burnowski Supp. Decl. at ¶ ¶ 1, 6. Moreover, he became personally familiar with the events surrounding the execution of Modification 23, because those events were critical in making decisions with respect to the continued administration of the contract, particularly with 16

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respect to the Proposed Modification 35. Id. That is, the performance of his duties as team leader required him to know the information contained in paragraphs 3-13 and paragraph 20 of his declaration. Id. In addition, an affiant's personal knowledge may be acquired through the review of files and records. Londrigan v. Federal Bureau of Investigation, 670 F.2d 1164, 1174 (D.C. Cir. 1981) (concluding that FBI agent was competent to testify about the conduct of an investigation in which he had not participated based upon his review of the case file); Washington Cent., 830 F. Supp. at 1353; Vote v. United States, 753 F. Supp. 866, 868 (D. Nev. 1990) (holding that affidavit of Internal Revenue officer was based upon personal knowledge where it was based upon her "personal familiarity with plaintiff's case and her review of the plaintiff's file"). As indicated in his initial declaration, Burnowski's personal knowledge was acquired, in substantial part, based upon his review of official Department of Transportation records. Burnowski Decl. p. 4; Burnowski Supp. Decl. ¶ 5. Thus, the statements in Burnowski's declaration are within his personal knowledge and are properly included in his declaration. The Court, therefore, should deny Veridyne's motion to

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strike portions of his declaration.4 B. The Court Should Not Strike Paragraphs 5 and 7 From the Declaration of Kevin T. Durkin

Veridyne contends that ¶ 5 of the Declaration of Kevin T. Durkin, which describes statements made by Michael Genna, Veridyne's former chief financial officer, should be stricken as hearsay. Pl. Mot. at 5. Veridyne explains that Genna was not an employee of Veridyne at the time he made the subject statements to Agent Durkin and, therefore, the statements may not be deemed admissions by a party opponent pursuant to FRE 801(d)(2)(D). To the contrary, Mr. Genna's statements are not hearsay because they are not offered to prove the truth of the matter asserted. FRE 801(c). That is, his statements are offered, in part, to demonstrate that Veridyne had knowledge of the falsity of its proposal, which the United States is required to prove in order to prevail on its defense of forfeiture pursuant to 28 U.S.C. § 2514.

We note that, if the Court were to grant Veridyne's motion to strike, the Court may still grant the Government's motion for summary judgment, because support for many of the stricken paragraphs may be found in the Declaration of Samuel Patterson and the exhibits to the Patterson Declaration. The following table indicates the portions of Burnowski's Declaration that are supported by Veridyne's summary judgment evidence: Burnowski Decl. ¶3 ¶4 ¶5 ¶6 ¶8 ¶9 ¶ 10 ¶ 11 ¶ 13 Patterson Decl. ¶8 ¶ 9, 11-13 ¶2 ¶ 11 ¶3 ¶ 20-21 ¶ 24, Exh. F (A93) Supp. Decl. ¶ ¶ 23-24 Exh. D

4

The remaining three paragraphs that are the subject of Veridyne's motion (¶ ¶ 7, 12 and 20) are within Burnowski's general knowledge as a result of his duties as team leader. 18

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Long Island Savings Bank, 476 F.3d at 926. In this context, Mr. Genna's statements indicating that the proposal had been engineered to satisfy the $3 million threshold are offered not to demonstrate that the proposal actually was fraudulent (which we have demonstrate through other evidence), but to demonstrate that Mr. Genna, as Veridyne's chief financial officer, believed that the proposal had been engineered and, thus, was aware of the proposal's falsity. Def. Resp. and Cross-motion at 16 ("Genna's and Patterson's knowledge of the falsity of the proposal's representations is apparent from their statements to the Inspector General's agents."); Id. ("Here, the record demonstrates that both Genna and Patterson had knowledge of the falsity of the assumptions presented in the proposal"). In any event, Mr. Genna's statements were adopted by Mr. Patterson in his second interview with agents from the Department of Transportation Inspector General's office and, thus, Mr. Patterson's adoption of those statements is admissible pursuant to FRE 801(d)(2)(D). As Agent Durkin explained in his declaration "[w]hen confronted with Mr. Genna's statements that the estimate was inaccurate, not in good faith and was prepared for the purpose of satisfying the sole source threshold, Mr. Patterson agreed with those statements." Durkin Decl. ¶ 6. If Mr. Genna's statements to Agent Durkin are stricken, then, the Government is in the same position with respect to its motion for summary judgment because Mr. Patterson's statements, identical in substance to Mr. Genna's statements, are clearly admissible. CONCLUSION For the reasons stated in the Government's Cross-motion for Summary Judgment and in this Reply, we respectfully request that the Court grant summary judgment in favor of the United States. 19

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Respectfully submitted, PETER D. KEISLER Assistant Attorney General JEANNE E. DAVIDSON Director s/ Steven J. Gillingham STEVEN J. GILLINGHAM Assistant Director s/ Robert E. Chandler ROBERT E. CHANDLER Trial Attorney Commercial Litigation Branch Civil Division Department of Justice 1100 L St., N.W. Attn: Classification Unit 8th Floor Washington, D.C. 20530 Tel: (202) 514-4678 Attorneys for Defendant

Of Counsel: Janis Rodriguez, Esq. United States Department of Transportation August 10, 2007

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CERTIFICATE OF FILING

I hereby certify that on this 10th day of August 2007, a copy of the foregoing "Defendant/Counter-claimant's Reply to Plaintiff's Response to Defendant/Counter-Claimant's Cross Motion For Summary Judgment and Response To Plaintiff's Motion to Strike" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/ Robert E. Chandler

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A1

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A10